Cal. Self-Insurers' Sec. Fund v. Superior Court of Orange Cnty.

who represented clients in the healthcare industry. Since 2014, M&R served as attorneys for moving parties, as well as four other defendants in this matter. The representation of those parties was handled primarily by four attorneys at M&R, including Selesnick. According to Farrow, Selesnick was actively involved in the case, including participation in a confidential discussion pertaining to moving parties' liability and damages. After real parties began working together on a common defense, in February 2014, Selesnick was copied on many e-mails containing communications about that defense.

On or about February 1, 2017, Selesnick left M&R and joined Nixon Peabody. Nixon Peabody was promptly advised of the potential conflict issue by M&R. On or about March 8, Selesnick "part[ed] ways" with Nixon Peabody.

of them, we issued an order to show cause as to why relief should not be granted.

This also applies to a law firm where an attorney is currently working. "It is now firmly established that where the attorney is disqualified from representation due to an ethical conflict, the disqualification extends to the entire firm [citations] at least where an effective ethical screen has not been established [citation]." ( Adams v. Aerojet-General Corp. (2001) 86 Cal.App.4th 1324 , 1333, 104 Cal.Rptr.2d 116 ( Adams ); Farris v. Fireman's Fund Ins. Co. (2004) 119 Cal.App.4th 671 , 689, fn. 17, 14 Cal.Rptr.3d 618 ( Farris ).) "As a general rule in California, where an attorney is disqualified from representation, the entire law firm is vicariously disqualified as well. [Citations.] This is especially true where the attorney's disqualification is due to his prior representation of the opposing side during the same lawsuit." ( Henriksen v. Great American Savings & Loan (1992) 11 Cal.App.4th 109 , 114-115, 14 Cal.Rptr.2d 184 ( Henriksen ).)

Thus, there is no question that if Selesnick were seeking to represent the Fund, he could not do so. There is also no question that if Selesnick continued to work at Nixon Peabody, the entire firm would be disqualified. The question that is left to us is whether Nixon Peabody and all its attorneys are also prohibited from representing the Fund given all the relevant facts, including that Selesnick no longer works at Nixon Peabody, and was only there for a very brief period.

The moving and real parties argue, and the trial court agreed, that disqualification in such a situation is automatic under the bright-line rule set forth in Henriksen . In that case, borrowers sued a lender for lender liability, and the lender filed a cross-complaint seeking foreclosure. The lender's initial law firm, Hoge, Fenton, Jones and Appel (Hoge) employed an associate named Peter Brock. ( Henriksen , supra , 11 Cal.App.4th pp. 111-112, 14 Cal.Rptr.2d 184 .) Brock spent more than 200 hours on the case. Some other events ensued, but as relevant here, sometime later, Brock joined the borrrowers' law firm, Bartko, Welsh, Tarrant & Miller (Bartko). The lender moved to disqualify Bartko based on Brock's conflict. Bartko argued that it had put procedures in place to isolate Brock from the litigation, but ultimately, the

Company, to discuss possible retention of Cohen's services as a consultant. It was undisputed that counsel conveyed confidential information to Cohen. Cohen was interested, but it came to light that Fireman's Fund had, possibly, provided insurance coverage to one or more of the defendants. ( Id . at pp. 786-787, 108 Cal.Rptr.3d 620 .)

Approximately a year later, Cohen moved to a firm, Sonnenschein Nath & Rosenthal LLP (Sonnenschein). Plaintiffs contacted Cohen, who would no longer have a conflict due to his role at Fireman's Fund, about consulting on the case. Cohen said he would check conflicts at Sonnenschein and get back to them. Before he did so, plaintiffs sent Cohen edited versions of the complaint, "reducing them to what plaintiffs' counsel believed to be the main issues." ( Kirk , supra , 183 Cal.App.4th at pp. 786-787, 108 Cal.Rptr.3d 620 .) Shortly thereafter, Cohen replied: " 'It turns out that the firm does represent First American, so I'm afraid that I won't be able to be of any help. I haven't read the attachments to your email and will delete them without having read them.' There was no further contact between Cohen and ... counsel." ( Ibid . )

Shortly thereafter, the attorneys from Bryan Cave representing First American moved to disqualify Sonnenschein. Plaintiffs objected to Sonnenschein's representation, given Cohen's prior contact with counsel. Until that point,

"In discussing the substantial relationship test in Flatt , the Supreme Court stated that once the test is met, 'disqualification of the attorney's representation of the second client is mandatory; indeed, the disqualification extends vicariously to the entire firm.' [Citation.] The Supreme Court cited Henriksen for the proposition that vicarious disqualification is compelled as a matter of law. [Citation.] The Flatt case, however, was not concerned with whether a tainted attorney's law firm was subject to vicarious disqualification." ( Kirk , supra , 183 Cal.App.4th at p. 797, 108 Cal.Rptr.3d 620 .)

"In the context of Flatt , the Supreme Court's citation of Henriksen with approval and statement of a rule of automatic vicarious disqualification

City and County of San Francisco v. Cobra Solutions, Inc. , supra , 38 Cal.4th at page 839, 43 Cal.Rptr.3d 771 , 135 P.3d 20 , Meza v. H. Muehlstein & Co., Inc. (2009) 176 Cal.App.4th 969 , 98 Cal.Rptr.3d 422 , had also discussed the issue. "Relying on Henriksen , Flatt , and the Supreme Court's rationale for vicarious disqualification in SpeeDee Oil , we concluded that 'an "ethical wall" between an attorney with

information from Cohen to the First American team, or any other member of the Sonnenschein firm who may have worked on the related class actions. If (1) the Sonnenschein firm can overcome the rebuttable presumption that confidential information was transmitted, by offering sufficient evidence that confidential information was not, in fact, transmitted and (2) the trial court, in the exercise of its discretion, concludes that the implicated policy considerations favor allowing Sonnenschein to remain as counsel, the trial court should deny the motion for disqualification. If, however, the trial court concludes that (1) Sonnenschein has not sufficiently rebutted the presumption that confidential information was transmitted, or (2) despite a finding that confidential information was not transmitted, the competing policy considerations nonetheless mandate disqualification of the entire firm under the circumstances, the trial court should grant the motion for disqualification. We express no opinion on the resolution of any of these questions, which are for the trial court to determine in the first instance." ( Kirk , supra , 183 Cal.App.4th at p. 816, 108 Cal.Rptr.3d 620 .)

We agree with the court in Kirk that whether disqualification of the entire firm is automatic is an open question. As Kirk noted, other recent cases have suggested it is not. ( Farris , supra , 119 Cal.App.4th at p. 689, fn. 17, 14 Cal.Rptr.3d 618 ; Adams , supra , 86 Cal.App.4th at p. 1333, 104 Cal.Rptr.2d 116 .) Our role here, of course, is only to decide the case before us, which has factual circumstances unlike any of the published cases we have found. Real parties distinguish Kirk by noting that unlike Cohen, Selesnick actively represented one of the parties in the dispute at his old firm. While that is true, we do not believe it requires automatic disqualification in this case. The Kirk rule not only sets forth an argument that better serves the purposes of disqualification-to protect clients on both sides-but it also avoids the harshness of implying an automatic rule that may not be necessary or appropriate under these facts.

Instead, we conclude the trial court must perform an analysis regarding whether confidential information was, indeed, transmitted from Selesnick to the attorneys working on the matter at Nixon Peabody. This is not an issue of loyalty-it is undisputed that none of Nixon Peabody's current attorneys representing the Fund owe a duty of loyalty to moving parties or the other real parties. The question, then, is whether Selesnick's tenure at the

the case, and there was evidence before the court that no confidential information was shared. Further, at this stage of the case, the Fund would be substantially prejudiced if it had to hire new counsel and bring them up to speed.

Individual assessment of the facts, rather than automatic disqualification, is a modern rule that better reflects the current realities of law firm life in the 21st century. "Disqualification based on a conclusive presumption of imputed knowledge derived from a lawyer's past association with a law firm is out of touch with the present day practice of law. Gone are the days when attorneys (like star athletes) typically stay with one organization throughout their entire careers. ... We have seen the dawn of the era of the 'mega-firm.' Large law firms (like banks) are becoming ever larger, opening branch offices nationwide or internationally, and merging with other large firms. Individual attorneys today can work for a law firm and not even know, let alone have contact with, members of the same firm working in a different department of the same firm across the hall or a different branch across the globe." ( Adams , supra , 86 Cal.App.4th at p. 1336, 104 Cal.Rptr.2d 116 .) This, of course, is relevant here because Selesnick and the attorneys working on the matter operated out of different offices. The "water cooler chat" rationale for automatic disqualification is therefore not a concern in this instance.

Further, the rationale behind automatic disqualification is substantially diminished when the attorney in question no longer works at the firm sought to be disqualified. Goldberg v. Warner/Chappell Music, Inc. (2005) 125 Cal.App.4th 752 , 23 Cal.Rptr.3d 116 , was an employment discrimination case. The plaintiff sought to disqualify defense counsel because the plaintiff had consulted with a partner at the firm six years earlier. That partner had left the firm before the litigation began. ( Id. at pp. 754-755, 23 Cal.Rptr.3d 116 .) The trial court

dissolved. Let a peremptory writ of mandate issue directing the superior court to vacate its order disqualifying the firm, and to consider all relevant facts and circumstances, as set forth in this opinion, in determining whether the motion to disqualify should be granted. Petitioners shall recover their costs.

WE CONCUR:

O'LEARY, P.J.

IKOLA, J.

Petitioners California Self-Insurers' Security Fund (the Fund) and Nixon Peabody LLP (Nixon Peabody or the firm) seek a writ of mandate directing the trial court to vacate its order disqualifying Nixon Peabody from representing the Fund in the instant case. Petitioners argue the trial court mistakenly believed it was compelled by law to disqualify the firm; the court instead should have made further factual findings and exercised its discretion. Real parties in interest contend disqualification was mandatory and therefore no discretion needed to be exercised.

We conclude, for the reasons set forth below, that automatic disqualification was not required under these facts. We therefore grant the petition and direct the trial court to determine whether confidential information was transmitted to Nixon Peabody, or whether, in the court's discretion, other compelling reasons dictate the firm should be disqualified.

FACTS

The Fund is a nonprofit organization charged by the state Legislature with continuing payment of workers' compensation claims when a self-insured entity is unable to do so. ( Lab. Code, § 3740.) When the Fund steps in to provide such payments, it is required by law to seek reimbursement from the employer. ( Lab. Code, § 3744, subd. (a).) The instant action is a collection effort by the Fund.

The law permits groups of employers to band together into self-insurance groups, and the Fund is also responsible for paying workers' compensation claims when such groups cannot. The Healthcare Industry Self-Insurance Program (the Program) is one such group. In 2013, the California Department of Industrial Relations ordered the Fund to assume the Program's workers' compensation claims.

The Fund hired Nixon Peabody to represent it in order to seek reimbursement. In November 2013, the Fund filed a lawsuit naming 304 members of the Program as defendants, approximately 170 of which have since settled. The remaining defendants are real parties in interest (real parties) in this proceeding.

Two real parties are of particular note here. Activcare Health Care Group and Mountview Retirement, Ltd., et al. (the moving parties) are represented by Michelman & Robinson, LLP (M&R). According to a declaration filed by M&R attorney Jeffrey D. Farrow, from approximately 2009 until February 1, 2017, attorney Andrew Selesnick served as Chair of the Health Care Department at M&R, overseeing and managing a team of attorneys

DISCUSSION

" ' "The relation between attorney and client is a fiduciary relation of the very highest character, and binds the attorney to most conscientious fidelity- uberrima fides ." [Citations.] Among other things, the fiduciary relationship requires that the attorney respect his or her client's confidences. [Citations.] It also means that the attorney has a duty of loyalty to his or her clients. [Citations.]' [Citation.]" ( Cal Pak Delivery , Inc. v. United Parcel Services, Inc. (1997) 52 Cal.App.4th 1 , 11, 60 Cal.Rptr.2d 207 .)

"Generally, a trial court's decision on a disqualification motion is reviewed for abuse of discretion. [Citations.] If the trial court resolved disputed factual issues, the reviewing court should not substitute its judgment for the trial court's express or implied findings supported by substantial evidence. [Citations.] ... However, the trial court's discretion is limited by the applicable legal principles. [Citation.] Thus, where there are no material disputed factual issues, the appellate court reviews the trial court's determination as a question of law. [Citation.] In any event, a disqualification motion involves concerns that justify careful review of the trial court's exercise of discretion. [Citation.]" ( People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135 , 1143-1144, 86 Cal.Rptr.2d 816 , 980 P.2d 371 ( SpeeDee Oil ).) In the instant case, it appears from the court's order that it believed disqualification was mandatory and automatic. Therefore, the court did not truly exercise its discretion. Our review is de novo to determine whether the court's determination was correct as a matter of law, or whether an exercise of discretion is necessary here.

A motion to disqualify a party's counsel raises several important interests. ( SpeeDee Oil , supra , 20 Cal.4th at p. 1144, 86 Cal.Rptr.2d 816 , 980 P.2d 371 .) Thus, "judges must examine these motions carefully to ensure that literalism does not deny the parties substantial justice." ( Ibid . ) Depending on the circumstances, "a disqualification motion may involve such considerations as a client's right to chosen counsel, an attorney's interest in representing a client, the financial burden on a client to replace disqualified counsel, and the possibility that tactical abuse underlies the disqualification motion. [Citations.]" ( Id. at p. 1145, 86 Cal.Rptr.2d 816 , 980 P.2d 371 , fn. omitted.) However, "determining whether a conflict of interest requires disqualification involves more than just the interests of the parties." ( Ibid. ) "The paramount concern must be to preserve public trust in the scrupulous administration of justice and the integrity of the bar." ( Ibid. )

"A trial court's authority to disqualify an attorney derives from the power inherent in every court '[t]o control in furtherance of justice, the conduct of

its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto.' [Citations.]" ( SpeeDee Oil , supra , 20 Cal.4th at p. 1145, 86 Cal.Rptr.2d 816 , 980 P.2d 371 .)

Where an attorney's potentially conflicting representations are simultaneous, "[t]he primary value at stake ... is the attorney's duty-and the client's legitimate expectation-of loyalty ...." ( Flatt v. Superior Court (1994) 9 Cal.4th 275 , 284, 36 Cal.Rptr.2d 537 , 885 P.2d 950 ( Flatt ).) In such cases, the rule of disqualification is a " per se or 'automatic' one." ( Ibid . )

court granted the motion to disqualify. ( Id. at pp. 112-113, 14 Cal.Rptr.2d 184 .) The Henriksen court followed Dill v. Superior Court (1984) 158 Cal.App.3d 301 , 205 Cal.Rptr. 671 , a case with almost identical facts. The court noted that an ethical wall was insufficient: "[T]he ethical wall concept has not found judicial acceptance in California on our facts: a nongovernmental attorney armed with confidential information who switches sides during the pendency of litigation." ( Henriksen , supra , 11 Cal.App.4th p. 115, 14 Cal.Rptr.2d 184 .) Disqualification of the entire firm under such circumstances, the court held, was automatic and required. ( Id. at pp. 114-115, 14 Cal.Rptr.2d 184 .)

Petitioners contend disqualification is not automatic when the attorney in question has left the firm before the motion to disqualify is decided. They rely heavily on Kirk v. First American Title Ins. Co. (2010) 183 Cal.App.4th 776 , 108 Cal.Rptr.3d 620 ( Kirk ). We analyze this case in depth not because the petitioners cite it in their favor, but because it provides a lengthy analysis of the current state of California law on this issue.

That case involved a series of class action lawsuits against First American, a title insurer, and related entities. First American was represented by three attorneys at Bryan Cave LLP. ( Kirk , supra , 183 Cal.App.4th at p. 785, 108 Cal.Rptr.3d 620 .) At one point during the case, plaintiffs' counsel spoke to Gary Cohen, then chief counsel for Fireman's Fund Insurance

confidential information and his or her firm will generally not preclude the disqualification of the firm. [Citation.] Instead, there is a presumption that each member of the firm has imputed knowledge of the confidential information.' [Citation.] Although we stated that an ethical wall will generally not preclude disqualification, we did not address in what circumstances an ethical wall may preclude disqualification, or whether the presumption can ever be rebutted." ( Kirk , supra , 183 Cal.App.4th at p. 799, 108 Cal.Rptr.3d 620 .)

The court continued: "In very brief summary, the history of the law of vicarious disqualification appears to be as follows: (1) appellate courts initially concluded vicarious disqualification was not automatic, but instead subject to a balancing test; (2) Henriksen concluded the burden of rebutting the presumption of imputed knowledge simply could not be satisfied in the case of a tainted attorney who represented one party and switched sides in the same case; (3) the Supreme Court favorably cited Henriksen and appeared to state a rule of automatic vicarious disqualification any time material confidential information was presumed to be held by the tainted attorney ( Flatt ); (4) the Supreme Court subsequently suggested that whether vicarious disqualification can be avoided by a proper ethical wall was still an open question ( SpeeDee Oil ); and (5) the Supreme Court has never directly addressed the issue on the merits.

"Given this history, we conclude that it is improper to rely on Flatt as creating an absolute rule of vicarious disqualification in California. Instead, we believe that neither Flatt nor SpeeDee Oil addressed the issue of whether vicarious disqualification is absolute, and the state of the law is that as initially expressed by the appellate courts: (1) a case-by-case analysis based on the circumstances present in, and policy interests implicated by, the case; (2) tempered by the Henriksen rule that vicarious disqualification should be automatic in cases of a tainted attorney possessing actual confidential information from a representation, who switches sides in the same case.

"We do not doubt that vicarious disqualification is the general rule, and that we should presume knowledge is imputed to all members of a tainted attorney's law firm. However, we conclude that, in the proper circumstances, the presumption is a rebuttable one, which can be refuted by evidence that ethical screening will effectively prevent the sharing of confidences in a particular case." ( Kirk , supra , 183 Cal.App.4th at pp. 800-801, 108 Cal.Rptr.3d 620 , fn. omitted.)

Taking the unusual step of accepting additional evidence on appeal, the Kirk court also noted that Cohen, having been at Sonnenschein for approximately one year, had since departed. ( Kirk , supra , 183 Cal.App.4th at pp. 815-816, 108 Cal.Rptr.3d 620 .) "[O]nce the tainted attorney has left the firm, vicarious disqualification is not necessary 'where the evidence establishes that no one

other than the departed attorney had any dealings with the client or obtained confidential information.' " ( Id. at p. 815, 108 Cal.Rptr.3d 620 .)

The court ultimately reversed and remanded, directing the trial court to "determine whether Cohen's activities at the firm actually resulted in the improper transmission, directly or indirectly, of confidential

denied the motion, and the Court of Appeal agreed, finding no evidence that confidential information had or was likely to be communicated. ( Id. at p. 758, 23 Cal.Rptr.3d 116 .) While the facts are different here, the same principle applies: automatic disqualification is not required, but is a presumption subject to rebuttal. Automatically finding that Selesnick's very short tenure at Nixon Peabody is sufficient to impute knowledge to the entire firm, including attorneys working on the matter in a different office, places form over substance.

Disqualification is neither intended to be punitive nor formalistic. "The purpose of a disqualification order is prophylactic, not punitive. [Citation.]" ( Kirk , supra , 183 Cal.App.4th at p. 815, 108 Cal.Rptr.3d 620 .) "Disqualification is inappropriate, however, simply to punish a dereliction that will likely have no substantial continuing effect on future judicial proceedings. [Citation.]" ( Gregori v. Bank of America (1989) 207 Cal.App.3d 291 , 309, 254 Cal.Rptr. 853 .) Nor should "literalism ... deny the parties substantial justice." ( SpeeDee Oil , supra , 20 Cal.4th at p. 1144, 86 Cal.Rptr.2d 816 , 980 P.2d 371 .) Disqualification, because it implicates such important interests, should be carefully considered. Given the facts of this case, we therefore conclude it is appropriate for the trial court to engage in the factual analysis discussed in Kirk before exercising its discretion to determine if disqualification is necessary.

DISPOSITION

The petition is granted. The order to show cause is discharged, and the stay is